William “T” Thompson, Esq.
The Flight To Wealth™ Special Report Taking Your Finances From 0 to More Than 50,000 Feet
THE SKY-HIGH NET WORTH SYSTEM
FIRST CLASS FLIGHT PLAN FOR BUSINESS AND LIFE™ SERIES
Copyright © 2008 The Summit Group Companies, LLC
The Flight To Wealth™ Special Report Contents I.
Introduction……………………………………….3
II.
Preflight-Your Wealth Destination……………….……5
III.
Situational Awareness- The Millionaire Mindset……....7
IV. Flight Planning- The SOAR Goals………………...….9 V.
The Take Off-Taxes and Home Ownership………..…...11
VI. Climb Out- Owning a Business……………………….16 VII. Cruising- The Investment Portfolio……………………18 VIII. Planning for Arrival-Tax Deferred Accounts.................22 IX. A Perfect Landing- Estates and Trusts……………….25 X.
Post Flight- The 3Ds………………………………...27
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I. Introduction Congratulations on your interest in greatly improving your current financial situation. This report will show you the “secret” I discovered some years ago when I was an Air Force pilot and how I have used this “secret” over time to amass a fortune. While simple as a concept, the discovery I made literally changed my life. Ok, I know that sounds a little stale, tired and worn and the “changed my life” phrase is greatly over used. The truth, however, is I am worth millions of dollars today because of following this straightforward, uncomplicated process. The important thing to realize is that you have most likely used elements of this process many times as well, but have probably not applied it as a part of a wealth building strategy. The good news is you’ll be able to understand the basic principles very easily. All you’ll need to do is shift the way your mind sees the information. I know the suspense is killing you, so let me tell you the wealth “secret” I discovered. I realized that I could use the same planning process and action steps I took when I flew an Air Force mission, to build a million dollar net worth. Yep, it’s not rocket science and is as simple as that. You see, my entire aviation career has been built on a foundation of planning. In the Air Force, we had mission plans and at Delta we always use a flight plan. You begin the process by deciding what mission you want to accomplish or what city you want to go to. Having defined your destination, you then determine the route you’ll take and identify the different points you’ll need to cross, along the way. You identify what resources you’ll need to get you to your destination and what negative factors might hinder you along the way. Finally, you identify alternate airfields in case something happens and you have to change your plans.
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If you have ever flown or even taken a trip before, you have been through a similar thought process. You’ve made a decision about where you were going to go. You’ve planned on how you were going to get there. And you’ve had to make decisions about the resources that it would take to get you to that destination. I’ve used this same simple process to get me to a multi-million dollar destination. Now, let me be clear. Simple doesn’t mean that it doesn’t take time or effort on your part. Quite frankly, it takes both. This is not a “get rich quick” scheme or a “unique business opportunity.” But simple does mean that the process is not complicated and most people with average intelligence will be able to follow the steps necessary to enjoy a 7 figure net worth. If you are willing to learn and honestly want to take the journey, I’ll be happy to be your skipper and guide you along the prosperity flight path. If you are ready, consider this report your ticket and boarding pass to the beginning of a rewarding and exciting journey. This is your Captain. Welcome aboard your Flight to Wealth
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II. Preflight Your Wealth Destination It was many years ago in rural South Carolina. I was walking down a country road on my way home from high school when suddenly, for a brief moment, the sky went dark. The ground started shaking and I heard a loud, deafening roar-as a sleek Air Force jet flew 500 feet over my head. It was so low that I could feel the heat from the engines on my face. I thought that plane was about to crash. But the pilot pulled that shiny craft straight up, put it into afterburner, and that silver jet literally disappeared into a clear blue sky. It was the most exciting thing I’d ever experienced in my life. I didn’t know how, when or where it would happen but I made a conscious decision, right then and there, that I would one day fly in a jet like that. Here’s the moral of that short story. The beginning point of any journey is the decision to take the trip. When you have vacation coming up, the first thing you do is to decide whether you‘ll stay home and get some chores done or take a trip to some exotic place. The same process applies to the wealth journey. You can’t stay at home, dream about it, hope things will someday work out or wish for the best. You have to start by making a conscious decision that you will become wealthy and you’ll take the flight. The second step in the process is to define what “wealth” means to you. We are all unique people with different wants, needs and desires. This means we probably also have different definitions of what it means to be wealthy. The traditional concept of wealth envisions a large amount of money or possessions, but wealth can be so much more. In Buddhism, the concept of wealth has nothing to do with money at all. It can be an abundance of health, happiness, love and well being. My definition of wealth is all of that and much more. In addition to the Buddhist concept, I also wanted to have enough money so that money didn’t matter. You might define wealth as having enough money so that you never have to work another day unless you choose to do so. 5
Our individual views might be quite different. Whatever your definition is, you’ll need to define it with specificity. You’ll need to have a clear goal in mind as you begin the flight to your wealth destination.
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III. Situational Awareness The Millionaire Mindset In flying, the term “Situation Awareness” refers to the pilot’s mental state. It’s the concept of thinking, knowing and understanding what’s going on around him/her and being aware of what’s happening whenever he’s in the cockpit, whether in the air or at the gate. I use the term in this report to make you aware of your mental state as it relates to how you think about money and whether you truly think you will become a millionaire. The 19th century English author John Allen wrote in his essay, As a Man Thinketh:
“The aphorism ‘As a man thinketh in his heart, so is he,’ embraces the whole of a man’s being. It is so comprehensive that it reaches out to every condition and circumstance of life. A man is literally what he thinks. His character is the sum of all of his thoughts.” This quote is the essence of my theory on why a few people become millionaires, but despite such tremendous opportunity in America, their ranks are so thin. So how many millionaires are there? According to the World Wealth Report, there are approximately 9.5 million millionaires worldwide. With a world population of approximately 6.7 billion, that’s about 1 for every 708 people or .14%. So 99.86% of the people in the world are not millionaires. In the U.S., there are approximately 6 million millionaires. With a population that has just reached 300 million, this gives us 2 millionaires for every 100 people. Your chances of reaching millionaire status are about 14 times better here, where approximately 2% of the population is a member of the club. That wealthy people think in a different way is hard to dispute, especially given the scarcity of millionaires in the world. Why is it that such a relatively small number of people have this different thought process? Why are the numbers so few? Most of us aren’t exposed to the concepts of prosperity or taught the laws of money and never develop the proper mindset for building and accumulating wealth. We are 7
taught to go to college, get an education, and then go get a good job. I can’t ever remember seeing “Wealth 101” offered as one of the course choices in any of my schools. Sure, it’s true that some people are born into wealthy circumstances but the overwhelming majority of millionaires (84%) are self made. They had the drive and motivation to discover, learn, and implement the principles of making money and to seek out mentors and coaches along the way. In most cases it wasn’t talent, intelligence or ability that resulted in their financial success. More often than not, it was simply their mindset or how they chose to think. You must develop a millionaire mindset if you ever expect to acquire great wealth.
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IV. Flight Planning The SOAR Goals I checked my log book the other day to see what my total flight time was. Can you believe it was over 18,000 hours? That’s over 750 twenty four hour days, 25 straight months or over 2 straight years of being in the air. I think you’ll agree that’s a lot of time being in the heavens. Let me tell you something even more remarkable. Not even once during all of those flights did I ever takeoff without a flight plan and knowing exactly what my destination was. I guess things worked out because I’m sitting here writing about it. The point is simply this. You’ll never get to a specific place in life unless you know exactly where you want to go, and develop a precise plan to get there.
SOAR GOALS AND THE CAPTAIN “T” FACTOR As it is in flight, so it is in building wealth. You’ll need to be very clear about what your destination is. You have to define what you want, when you want it, and how you’re going to get it, if you ever expect to achieve your financial goals. I want to introduce you to my SOAR process for setting your wealth objectives. It’s an acronym and captures the essence of the components of a good goal. The S stands for Specific. Your goal can’t be “cloudy”. It has to be clear and specific. Setting a goal to be “well-off” is “cloudy”. Setting a goal to have one million dollars is specific. The O stands for Objective. This means that you, I, or anyone else, should be able to measure your progress toward the achievement of your goal. Having a goal to be “rich” is not objective. Your definition of “rich” and my definition may be totally different. The A stands for Attainable. You must have a goal that you can, at least theoretically, achieve. Let me put it this way. If you want to fly, you’d better be in some type of flying machine or have some kind of aviation device
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wrapped around you. Jumping off of a building and flapping your arms isn’t going to do it. The R stands for Realistic. Some things may be theoretically possible but just aren’t realistic. It would be tough to use the information in this short report to build a billion dollar portfolio over the next 5 years. Possible? Yes. Bill Gates might give you half a billion dollars and you could double the size of your portfolio using the principles you are about to learn. Is this realistic? I don’t think so. The final piece to the SOAR process is the Captain “T” factor where the “T” stands for Timeframe. All good goals have a timeframe associated with them. This puts pressure on you and motivates you to get the thing done. Did you ever have to pull an all-nighter to get a term paper or presentation done? Yeah, been there and done that too. My first major financial goal was to own my on home before I was 28. I bought it when I was 27. I remember having to hustle to close the deal because I wanted to meet that goal. My next major financial goal was to have a million dollars in assets by 35. I reached that goal at 34. But a million dollars in assets is not a million dollar net worth or a million dollars in cash. One of my more ambitious goals was to have at least 2 million dollars in cash or liquid assets, separate from any of my other assets such as my home. I wanted to be able to invest in the safest government bonds and have a six figure income without having to work and without ever having to touch the 2 million dollars. I achieved this goal some time ago, as well. I am sharing this information with you, not to impress you but to impress upon you the importance of having your SOAR goals. I have mine typed out and on my desk so I see them every time I sit down to do my work. This constantly reinforces my ‘destination’ and helps keep me motivated when I’m tempted to do something else that’s not moving me closer to my goals, like looking at TV or spending time surfing the net. I do believe in life balance though, and I have to confess that I do get weak on occasion. Truth be told, I never miss an episode of “24” on FOX or “Heroes” on NBC.
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V. The Take Off Taxes and Home Ownership How do you feel about taxes? If you are like most people, you find them complex, complicated and intimidating and you are right to feel that way. The language is sometimes difficult and the calculations are often complex. The Internal Revenue Code itself is almost 17,000 pages long and the IRS also issues Revenue Rulings, Private Letter Rulings and Determination Letters, all of which affect the rules and how they are interpreted. And separate from the IRS, the Courts hand down tax decisions that affect or even change the laws. Is there any wonder that tax strategy and avoidance is usually a rich person’s game? Expert tax advice can easily approach $700 an hour. The wealthy can afford the expensive Financial Advisors and Tax Lawyers which keep them paying, on a percentage basis, much less than you. Yet having a basic understanding of the tax system is an elemental necessity on your wealth building flight. Consider this. Bill Gates was being interviewed on TV some years ago and was asked what one thing he would most attribute to his success. He didn't mention his software expertise. He didn't mention his business acumen. He didn't even mention his good fortune to have dropped out of Harvard to start his company, Microsoft. Bill Gates' unhesitant response was simply "a working knowledge of the tax laws." Here is a simple question that most people can't answer. How much do you pay in taxes? Go get your pay stub and add up the amount that is withheld for FICA, Federal Income Tax, and, if you live in a state that has an income tax, your state withholdings. I’m positive you’ll be surprise by the amount. I was an Air Force pilot, stationed in California, the first time I did this. My total withholdings were close to 50% of my gross salary. I was shocked and mad. I felt it was so unfair. But it was the incentive I needed to learn how to pay fewer taxes and to properly structure my financial affairs.
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Here is what the rich understand about taxes. The tax laws are structured to favor certain elemental values and actions in our country. If you understand this, then you’ll structure you affairs to align with what’s incentivised by the tax laws. Let’s look at one of our country’s fundamental values, home ownership. Do you own a home or do you rent? Though the total dollar amounts associated with buying a home are large, home ownership is generally less expensive than renting. When you rent to live, you’re using your money to help someone else become wealthy and you end up with nothing but thousands of dollars of canceled checks. Owning a home is the keystone of the American Dream and is one of the underpinnings of your wealth building flight. Even with the recent setbacks to the real estate industry due to sub prime mortgages, the home, for most people, has been their best investment and is still their most valuable asset. At the same time, the home is heavily incentivised in the tax code and remains the single largest tax write-off for most Americans. The tax structure favors homes when you buy them, while you own them and when you sell them. Some of these incentives have been in the tax code forever and exist solely to encourage home ownership. When You Buy “Points” – Let’s start with the purchase. Often when you buy a home with a mortgage, the lender will charge a fee. This is one of the ways they make their “up front” money on the loan. They usually come up with an official sounding name such as a “loan origination fee” or “discount fee” but the bottom line is you are being charged for getting the loan. The common name for these fees is “points.” A “point” is equal to 1% of the value of the loan. If your loan is $100,000 and you are being charged 2 “points”, you’ll be paying a $2,000 fee at your closing. The good news is these “points” are deductible when figuring your taxes. But let’s say you are a good negotiator and you get the seller to pay the “points” for you which sometimes happens. You will still be able to deduct the cost of those “points” on your tax return. This is really unique in that it is one of the few instances in the tax 12
code when you can deduct a payment that is made by someone else to reduce your taxes. “Pre-paid Interest” – If you close on your home on a day other than the first of the month, you’ll have to pay what’s called “pre-paid interest” at the closing. This is a daily calculated interest cost and it is multiplied by the remaining number of days in the month. This interest cost is also deductible on your tax return. By the way, here is how you may be able to get some money back. If you have purchased a home in the last 3-4 years and you didn’t take these deductions, you can file an amended return by filling out the tax Form 1040X. Generally, to claim a refund, the 1040X must be received within three years after the date you filed your original return or within two years after the date you paid the tax, whichever is later. “Points” and “pre-paid interest” can usually amount to thousands of dollars, so it might be well worth it to check your HUD settlement statement and your tax return for the year you purchased your home, to see if these deductions were taken. The HUD settlement statement is one of the reams of paperwork you received at your closing. You should check lines 801 and 802 of the HUD statement to see if you paid “points” and line 901, to see if you “pre-paid interest”. If so, file the form and get your money! While you own.
“Acquiring and Improving” – One of the largest deductions that you will have each year is for interest paid on the mortgage you obtained to buy your home. For several years after you have purchased your home, most of your monthly payment will be interest, with only a small amount going towards reducing the principal. Principal is the actual amount of the loan. The interest amounts are deductible on the Schedule A of the Income Tax Form 1040. This deduction really amounts to a subsidy of your home ownership by Uncle Sam. You can also deduct any interest that you pay on a home improvement loan.
“Home Equity Loan Exception” – Most of us usually have consumer debt of some sort. It might be credit card debt, a car loan or some 13
other type of financing arrangement. The interest on this debt is usually much higher than the interest you will pay on your home mortgage. In fact, the current interest rate on a 30 year fixed rate mortgage is around 6.5%. On some credit cards, it’s well over 22%. Interest on consumer debt is also not deductible on your tax return. But with the “Home Equity Loan Exception” you can borrow up to an additional $100,000 from the equity in your home and transfer your higher interest, non-deductible consumer debt, to lower interest, deductible home mortgage debt. You don’t have this option if you are a renter. Once again, home ownership gives you a special tax break and a leg up on the journey to building wealth.
“Real Estate Taxes” – Real Estate Taxes paid on either your primary or second home are generally deductible from your income to reduce your tax liability. This includes any state, county, local or even foreign property taxes.
“Mortgage Credit Certificate” (MCC) – If you are a lower income, first time home buyer, this program is designed to help you achieve the American Dream. This is a Federal program but it is administered on the state or local level. Under this program, you can receive a credit of up to 20% of the interest you pay on your home each year. A credit is much better than a deduction. A deduction reduces the amount of income that you’ll end up paying taxes on. A credit reduces your actual tax. It’s the same as cold cash. When You Sell
“Excluded Gain” – The party gets better and keeps rolling along for the homeowner. You’ve owned your home for a few years and now you‘ve decided to sell. If you are married and file a joint return, you can exclude up to $500,000 of gain on the sale. That’s right! You can make up to half a million dollars on the sale of your home, tax free. If you are single, you only get $250,000 tax free so if you’ve got a big gain, it might be a reason to get married. Just kidding, of course. And you don’t even have to live in the house the entire time. The rule only requires that you live in the property 2 out of the last 5 years.
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There are many other significant financial advantages to home ownership. I have just shown you some of the rewards to be reaped from a tax structure point of view. There are also ways to creatively finance homeownership often with little or no money down. A home can also be used as a financing source for a business or to acquire investments. I cover these subjects extensively in new The Flight to Wealth™ Home Prosperity System which will be available in the second quarter of 2008.
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VI. Climb Out Owning a Business You’ve completed your Take Off by understanding the role the tax structure plays and focusing on getting a house, the primary wealth builder for most Americans. You are now ready to accelerate your climb to the millionaire level by starting a business. Let me make a fundamental statement. You must, absolutely must, start a small business, to speed your climb to 7 figures. The tax structure favors owning a business and it’s critically important to start yours as soon as you can. Here is an interesting question for you. What do Bill Gates, Warren Buffett, Sheldon Adelson, Larry Ellison, Paul Allen and Michael Dell all have in common? They are all on top of the Forbes list as the richest Americans and they all started their own businesses. Why start a business? Let me give you 4 simple reasons: Unlimited Income Potential. If you don’t own your own business, you are always working at an hourly rate. And it doesn’t matter what type of job you have. Most of my fast food employees were working at an hourly rate that was a bit better than minimum wage. As an international airline pilot, my top rate was about $300 an hour. As a highly qualified tax lawyer, I charged $500 an hour. Sure, both of those are good hourly rates. But I made my greatest income from the businesses I’ve owned. Maximum Tax Advantages. Now you don’t have to be a billionaire with tax lawyers and accountants to enjoy the tax advantages of owning your own business. In fact, you don’t even have to make a profit or generate revenue right away to enjoy the tax advantages of owning your own business. The IRS only requires that you have a “legitimate profit motive” in running your business to avail yourself of the tremendous tax advantages that come with business ownership. You can start a small business, “on the side” even if you have a job,
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run it out of your house and change your financial situation significantly.
You’re In Control. As a business owner, you are the person in charge. YOU ARE THE BOSS. Your destiny is in your hands. Your time is your own and you have to make it on your own. You can work as much or as little as you please. And, of course, you alone are in charge of your own financial security. I know this is a little scary for some of you, but if you are serious about joining the 7 figure club, get over it. Let’s be honest. There is little financial security in the corporate world today. Companies are going bankrupt at an ever increasing rate. I speak from personal experience and have been through cutbacks, downsizing and bankruptcy as an employee at Delta Air Lines. American jobs are also being sent overseas in waves. Had I not had my business ventures, I would have been in dire straights. As it was, Delta’s bankruptcy had little effect on my financial well being. That’s Where Riches Are Created. The overwhelming majority of millionaires have reached that status by having their own businesses. It is a proven fact that most wealth is created by the self employed. Let me share with you a very interesting statistic from the U.S. Census Bureau. The average net worth of a person who is employed by someone else is $65,000. The average net worth of a person who owns his or her own business is $355,000 or well over a quarter of a million dollars more. The Flight To Wealth™ Home Prosperity System shows you how to take the things you love to do and turn them into a legitimate revenue building, tax busting business. I showed my own Dad how to take his love of gardening and save thousands of dollars in taxes each year. The System will show you how to set up a corporation, partnership or LLC, as well as a host of other requirements to properly and successfully start your business. Watch for it in the second quarter of 2008!
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VII. Cruising The Investment Portfolio You’ve learned a little about the power of making a decision and the millionaire mindset. You now have a better understanding of structures and the importance of the tax laws in the wealth building process. You’ve been introduced to the importance of owning a home with its tremendous tax breaks and you understand the advantages of owning your own business. It’s time to move to the third leg of the journey, the investing and accumulation phase of the wealth building flight. My personal investment portfolio consists of three main categories of assets; investment real estate, stocks and bonds. I own them in different ways; from individual stocks or properties, to Exchange Traded Funds (ETFs), mutual funds and trusts. Here’s why you’ll need to own them too. Investment Real Estate. You have already been exposed to the importance of home ownership from both a tax strategy and wealth building perspective. Investment real estate, particularly income producing property, gives you those benefits and much more. For the beginning investor, income producing property gives you a very unique set of wealth building advantages unequaled by any other asset. Let me list just a few: You can buy a property with little money down and greatly leverage your investment return. For example, if you buy a $100,000 building with a $10,000 down payment and the building value increases by 6% to $106,000, you have actually made $6,000 and a 60% return on your initial investment. The tax laws on income property are structured so that the rent you receive from tenants usually ends up, after allowable deductions, tax free. Your rental receipts are used to pay the mortgage. Your tenants will actually be buying the building for you.
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Even though your building will typically increase in value, the tax laws are structured so that you will usually show a “paper loss” from operations. The tax laws allow you to use those losses to “shelter” or reduce taxes from income you may have from other sources, such as the salary from your job. I have owned and managed, individually or as a general partner, over 450 residential and commercial units. There have been years when my “paper losses” have “sheltered” hundreds of thousands of dollars from my Delta pilot income or income from other business ventures resulting in me paying little or no income tax. At the same time, the market value of my real estate increased dramatically. When you are taught and understand the concepts of prosperity and the laws of money, your wealth can literally rocket sky-high. Stocks. From Hong Kong, to London and on to New York, fortunes have been made (and also lost) in stock markets all over the world. Despite the risk, stocks, or equities as they are sometimes called, should definitely be a core part of your investment portfolio. Ok, stocks go up and stocks go down but how do you consistently build wealth with equities? A fair question so let’s start by being clear about what a stock is. A stock certificate is evidence of a share of ownership in a company. When a company (corporation) is formed, it issues shares of stock and sells those shares to the public to raise money (capital) for the corporation’s business purposes. The purchasers or shareholders now become part owners of the corporation. As the business grows and makes money, and the company becomes more successful, the value of the stock increases. As a part owner of the company, you share in that success. So, one of the formulas for success in the stock market is simple. Pick a good company when it’s still young, buy the stock, then sit back and watch your wealth grow.
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That’s one approach but, of course it’s a little more complicated than that. There are different ways to determine if the stock is really a good buy. One method is called Fundamental Analysis which looks at factors like the company’s revenue and earnings growth, whether it pays a dividend, its debt level and other financial information. Then there’s the approach called Technical Analysis which uses mathematical models and charts of past performance to identify certain trends and price patterns of a given stock. There are also different investment strategies for how and when to buy and sell stocks. One strategy is called “buy and hold.” Just as the words indicate, this strategy involves buying a stock and sticking with that choice for a longer term. Holding the stock is based on the fact that the stock market has given investors an average 10.4% rate of return over the past 80 years and close to 13.5% over the past 25 years. But an average return doesn’t mean that a particular stock will enjoy the same return. Nevertheless, some of the greatest investors of our time have used this strategy successfully, including Warren Buffett of Berkshire Hathaway Another strategy is called “market timing” which is based on the proposition that you should be invested in the stock market when prices are rising and you should be out of stocks when prices are going down. The challenge, of course, is knowing when to enter or exit the market, which is much easier said than done. Bonds. The other assets that should occupy at least a part of your portfolio are bonds. A bond is simply evidence of the fact that you have loaned money. When you buy a bond, you are actually making a loan to the company or governmental entity that issued the bond. In return for buying the bonds, the company or governmental entity will agree to pay you a certain amount of interest at specified intervals and return your money at a specific date, called the maturity date. Bonds add a degree of diversification and stability to a portfolio because they are a different type of financial asset and are usually “negatively 20
correlated” with stocks. This simply means that when stocks fall in value, the value of bonds may rise. Of course the process of acquiring, owning, managing and selling these assets require understanding on your part. If you want to learn the “ins and outs” of investing, and acquire the knowledge of how to use these assets to build your 7 figure net worth, you’ll want to order the Flight to Wealth™ Home Prosperity System as soon as it comes out in 2008. It’s packed with information and strategies guaranteed to rapidly and significantly increase your wealth.
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VIII. Planning for Arrival Tax Deferred Accounts One of the greatest ways to build substantial wealth is by using the different Tax Deferred Accounts (TDAs) that exist in the tax code. Without question, if you consistently and effectively use these accounts as vehicles for some of your investment funds, you’ll be able to amass a fortune in a relatively shorter period of time. “Why is this so?” you may be asking yourself. Because with TDAs you get the benefit of two of the most powerful forces astute investors use to create and build wealth, Compounding and Tax Deferment. Let’s take a close look at each of these forces.
Compounding Albert Einstein is said to have called compound interest the 8th wonder of the world and the greatest mathematical discovery of all time. So how does this great mathematical principle work? Compounding is simply the continuous reinvestment of money you earn on your investments. In effect, the money you earn makes money on itself, which makes even more money for you. Let’s say you invest $5,000 in a portfolio of stocks that appreciate by 10% in the first year. Your investment is now worth $5,500. You decide to keep your portfolio invested because you feel it will continue to perform and, sure enough, it increases by another 10%. Because the 10% increase was on both your original $5,000 and your previous earnings of $500, your portfolio is now worth $6,050. If the process repeats itself the next year, you would earn an additional $605, and your portfolio would be worth $6,655.
The Rule Of 72 As you can see from the above example, this process can begin to produce some pretty big numbers. In fact, if this process repeats for only 4 more
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years, your original $5,000 investment would be worth almost $10,000 or double its original value. This is an illustration of Einstein’s Rule of 72. The rule states that 72 divided by the interest rate, is the number of years it takes money to double. In my example, 72 is divided by the 10% annual return. It then takes 7.2 years for the $5,000 original investment to double to $10,000. Is this really possible? Well, remember that the average return in the stock market over the past 80 years has approached 11%. So, yes, this is definitely possible. In fact, let’s have a little fun by opening our minds, being aggressive and looking at the possibilities. What if you doubled both numbers in my original example? A $10,000 investment earning 20% annually would be worth close to $1,000,000 in 25 years. Remember, this is without adding any additional money! And what if you could add an additional $2,000 a year? Your portfolio would be worth close to $2,100,000. Now, consider if you earned 20% on your $2,100,000, you could live on $420,000 a year without ever touching your $2.1 million. Or if you continued to let it ride, in another 10 years it would be worth $13,000,000. Is this just a pipe dream? In The Flight To Wealth™ Home Prosperity System, I’ll introduce you to a little woman who, with a very modest income, started investing at age 50 with $5,000. Her portfolio enjoyed an annual return that approached 18%. By the time she died, she had turned that $5,000 investment into an estate worth $22,000,000. The power of compounding is truly the 8th Wonder of the World.
Tax Deferral Tax deferral is the process which allows you to postpone paying any taxes on your investment earnings until you begin to receive money (distributions) from the investment account. Your distributions will usually begin at retirement, many years (hopefully) after you first established the account. Tax deferral allows your portfolio to grow at a much faster rate because you have more of your earnings experiencing the power of compounding. If, in the above example, you had to pay taxes on the first year’s earnings of $500, your portfolio would only be worth an additional $425, assuming a 15% tax rate. After year 2, it would be worth $5,940 or $110 less and $210 less after year 3. Taxes eat away at your ability to build substantial wealth. 23
TDAs enable you to keep more of your money working hard for you and growing tax free. Most of the TDAs are retirement accounts and there are several different types that you can take advantage of. There are also different educational TDAs and some health accounts that have tax favored status as well. The Home Prosperity System lays out all of your options and explains in detail the requirements to set these accounts up.
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IX. A Perfect Landing Estates and Trusts Most people think estate planning is only for the rich and over 75% of Americans die without any kind of estate plan in place. Of course, it’s my goal to make you rich, and if you study and implement the strategies in The Flight To Wealth ™ Home Prosperity System, you’ll be well along the journey to creating and sustaining your wealth. The fact is, however, most people would greatly benefit from some basic estate and contingency planning, but don’t have any idea of where to start. I’m going to use this section of the report to point you in the right direction because you’ll be well served to include this process as a component of your wealth building goals.
Why Should You Have One? With any process that requires planning, the first step is to be clear about the things you want to accomplish. While we may have different goals and desires in our lives, there are certain fundamental things we all usually have in common. We want to be happy. If we have kids, we want them to do well. And we generally don’t like to pay taxes. If you agree with these basic concepts, let me give you three fundamental reasons why estate and contingency planning should be important to you:
1. To insure your wishes are carried out in the manner you want. (Getting what we want usually makes us happy.)
2. To ease the legal and financial burden on your loved ones while insuring a level of privacy. (Helps the kids out.)
3. To reduce the taxes on your estate so your loved ones get more and the government gets less. (Need I say more?)
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What Are the Components of a Good Plan? I’m going to give you a list of the documents that comprise a comprehensive plan. They are all related and have a very specific purpose to meet the goals I’ve previously mentioned. Don’t let the list intimidate you. It’s not as complicated as it may seem. I have all of these documents in my plan and it wasn’t a big deal. A competent estate and trust attorney will prepare these documents as the component parts of your overall plan and will usually present them together, in one binder, at the same time. 1. 2. 3. 4. 5. 6.
Revocable Living Trust (RLT) Pour over Will Durable Financial Power of Attorney Durable Health Care Power of Attorney Living Will Family Limited Partnership
These documents together provide a number of different functions for you and your family, including, privacy, avoiding probate, making your medical decisions known or allowing someone else to make medical decisions for you. They eliminate the down fall of just having a will. If you have a business (and you now know that you should) they enable the business to continue running. They enable your heirs to pays your bills without financial strain on themselves. And with the Family Limited Partnership, you protect your assets against frivolous law suits and outrageously high estate taxes. The rich understand the importance of structures and strategies and a basic estate plan is a fundamental part of the wealth building process.
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X. Post Flight The 3Ds So what drives a person to action? What is it that compels one to do what needs to be done? What is the key to sustained motivation which will put you in the world’s most exclusive club? The answer is surprisingly simple; adopting, developing, and committing to the 3Ds. Collectively, they are the most important factors for achieving personal or professional success. Desire It is one of the most powerful and important emotions required, not only to become a millionaire, but to achieve anything substantial in life. Those that reach millionaire status have a burning desire to succeed. In fact, succeeding to them is so important that there’s no room for failure. It doesn’t matter where they currently are in life, and most have started with little or nothing. What is most important is where they have made a conscious decision to go, and seven figures is the chosen destination. Discipline One of the best definitions of discipline I’ve ever heard is “doing what you need to do when you need to do it.” I think that sums it up. Discipline is the ability to take action regardless of how you are feeling. It is the self-denial of instant gratification in favor of a higher and better goal. It is the ability to overcome procrastination, laziness, temptation and bad habits in order to live a better and enriched life. Determination The dictionary defines determination as firmness of purpose, will or intention; the quality of continuing steadily despite problems or obstacles. It is the third and final dimension of the 3D trilogy.
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The truth of the matter is life is full of obstacles, roadblocks and setbacks for everybody and it doesn’t matter who you are. I want you to fully absorb this fact. We all have our crosses to bear and our battles to fight and, again, it doesn’t matter who you are. The rich, the famous, and the powerful can’t escape this fact of life. Marilyn Monroe committed suicide, President Clinton had impeachment proceedings brought against him and Donald Trump has twice declared bankruptcy. Even Bill Gates’ first business failed. In most cases, the difference between those that fall short and those that succeed is simply determination. Let me thank you for taking your valuable time to read this report. I hope you have found it informative and interesting. I hope it has wet your appetite to learn more and to begin to take this unique and special trip. If you are serious about becoming a millionaire. If you would like to learn the steps that will take you to a 7 figure net worth. If you want to get to the point in your life where money isn’t a concern to live the life you desire… Then you are ready to take The Flight To Wealth™. Look for the Home Prosperity System in early 2008! It will be the Flight that will change your life. Fly High, Fly Fast, and Fly Safe. Captain "T" Copyright 2007 © William L. Thompson About the Author: Captain William 'T' Thompson, Esq., The Wealth Building Pilot™ is an award winning CEO, Tax Attorney/CFP and retired airline pilot. He writes, speaks, consults, and coaches on Wealth Creation and Building, Multi-Tasking/Time Management and Life Balance. For free tips and additional information visit, www.CaptainT1.com, email T@CaptainT1.com or call 770-952-1813.
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